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Editorial: Tax break shows difficulty of tax reform

Posted: Wednesday, July 14, 2010

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Since the first day of last month, the state of Georgia has officially had in place a law creating an 11-member panel charged with studying the state's current tax structure and making recommendations for changes - changes that could find their way into state law in next year's legislative session.

In some ways, creation of the Special Council on Tax Reform and Fairness, which includes economists, business leaders, the governor and appointees of legislative leadership, is a welcome development. The council will bring a wide range of expertise to consideration of a tax system that has, over the decades, evolved to include a confusing array of tax breaks and outright exemptions, in addition to an income tax rate structure that's been in place for decades and is - depending on one's point of view, of course - significantly out of touch with current average income levels across the state.

Given the confusing and frustrating nature of the tax code, it's clear that the council, the legislative leaders who will, if they choose, translate some or all of the council's recommendations into legislation, and the legislators who will vote on that legislation have a daunting task in front of them.

Just how daunting that task might be can be seen clearly in connection with a back-to-school shopping sales tax holiday that would have been effective from July 29 to Aug. 2, had lawmakers not voted in this year's legislative session to suspend the holiday, which had been in effect since 2002.

During the sales tax holiday, which has to be approved annually by state lawmakers, a host of items, including clothes, shoes, school supplies and computers, are exempted from sales taxes.

This year, as reported earlier this week in The Atlanta Journal-Constitution, lawmakers opted against approving the holiday, citing a $2 billion budget deficit. The sales tax holiday routinely costs the state several million dollars in revenue, according to the Atlanta newspaper's story.

Or does it? Elsewhere in its Monday story, the Journal-Constitution notes that the president of the Georgia Retail Association "believes the state actually nets about $20 million during the sales tax breaks from salary, corporate and other tax revenue generated."

That divergence of opinion is, of course, associated with just one aspect of the state's tax system, and a relatively straightforward one, at that. Consider the plethora of other tax breaks and exemptions now in effect across the state, and it quickly becomes apparent that comprehensively studying the tax system, and understanding the ramifications of any proposed changes, is truly a difficult venture.

And as difficult as that work might be for the reform council, it's likely to be some orders of magnitude more difficult for legislators, many who may not have a particularly deep or nuanced understanding of the tax system or any proposed changes.

While a detailed and deliberate look at the state's tax system is a good idea, if lawmakers decide to pursue changes to that system in next year's legislative session, they'll need to be certain that those changes are in the best interests of the people and the businesses of this state.